An administrative snafu at Allied Signal led to multimillion-dollar losses in its employee retirement savings plan during last October's market crash and forced Allied to make up the difference, it has been learned.

The losses have fueled employee anxiety at the former Garrett AiResearch operation in Torrance, which was dissolved late last year in a restructuring ordered by the Morristown, N.J., headquarters of Allied.

Garrett, a major aerospace supplier founded in 1936, had operated autonomously until last year when Allied merged the company with its Bendix units. At the same time, Garrett had been losing money and laying off workers, all damaging to morale.

"There are a lot of angry employees," one Garrett manager said. "People are complaining."

Another manager who has spent years at the firm added: "Jamming Garrett and Bendix together is going to be difficult. People are casting a jaundiced eye at the new company."

The losses occurred when Allied headquarters failed to execute a large number of stock transactions that employees had requested involving Allied shares in their retirement savings accounts. The employees had asked that the shares be sold and the proceeds transferred to more conservative interest-bearing accounts. That was supposed to have been done on Sept. 30.

But when the market crashed on Oct. 19, the sell orders still had not been executed, leaving the savings plan with Allied shares worth far less than they had been two weeks before. Those who ordered their shares sold on Sept. 30 were given full credit, but the sizable loss that resulted was apportioned among all other accounts in the plan. That triggered a deluge of protest.

'Technical Problem'

"When I looked at the number of shares in my account, what I had in February was less than what I had in September," one Allied employee said. "I was missing more than 100 shares, which was worth something like $3,000 or $4,000."

Some Allied employees in the Los Angeles area said they were told by corporate administrators that the total loss to the savings fund amounted to $18 million, but company spokesman Michael Ascolese put the loss at $5 million.

"Some of the stock did not get sold until after the market crash," Ascolese said. "There was a technical problem in the transfer of stock."

Two weeks ago, Allied Signal Chairman Edward L. Hennessy Jr. sent a letter to company employees promising that Allied is "injecting funds to make it up," according to a copy of the letter provided to The Times by an employee.

Hennessy said in the letter, dated March 4, that the shortfall amounted to "less than 1% in the number of shares in the accounts of other participants," referring to employees who had not requested the sale of their Allied shares. But the 1% figure appears to be an average, and some employees say their losses exceeded 1%.

Hennessy called the snafu "an internal processing delay" and added, "Our administrative procedures are being reviewed to avoid a repeat of such a situation."

The entire incident seems to be a case of everything going wrong all at once. Until Sept. 30, Allied employees had to be over age 55 to convert their Allied shares to interest-bearing accounts, an Allied spokesman said. The company had changed the rules earlier in 1987 so that starting Sept. 30, individuals younger than 55 could convert their Allied stock, a company spokesman said.

So, when the first opportunity struck, many employees leaped at the chance to lock in a high price for their Allied shares. About 80 employees elected to make the change, according to several knowledgeable employees. Ascolese said he could neither confirm nor deny that figure.

Discontent Fueled

Employees who elected to make the change obviously thought they were lucky to avoid the crash. One longtime employee who held a balance of several hundred thousand dollars in the savings plan said he lost more than $100,000 in the market crash because of the drop in Allied shares.

The price of an Allied share dropped 39%, from $45.625 a share on Sept. 30 to $28, on Oct. 19, a plunge that exceeded the broader market crash. It has since recovered to $32.50 a share as of Friday.

The problems with the savings plans seem only to have exacerbated discontent that some employees are feeling as a result of the reorganization.

Allied dissolved Garrett last October and merged the various operations of Garrett and Bendix into a new entity known as Allied Signal Aerospace Co.

"We have had some difficulties at AiResearch," Ascolese acknowledged, "and they have been addressed."

Ascolese said the company does not break out operating results for its various operations but said business conditions in the aerospace industry have been "tough." He added that the restructuring involved "two very different organizations and two very different cultures."